Spain v Commonwealth of Australia

Federal Court of Australia|2011-03-16|Before: Mr P, Gilmour J

Introduction 1 The applicant, Mr Eric Spain, commenced proceedings against the Commonwealth of Australia by application dated 22 October 2010, in which he seeks an order that the respondent "pay compensation for unjust property acquisitions, under s 69E of the Banking Act 1959 (Cth) (the Banking Act), of fifteen million six hundred and thirty two thousand nine hundred and twenty dollars" ($15,632,920). 2 By notice of motion dated 25 November 2010, the respondent sought orders that the application be dismissed and that the applicant pay its costs by reason of the Court having no jurisdiction in respect of this matter, alternatively by way of summary judgment pursuant to s 31A(2) of the Federal Court of Australia Act 1976 (Cth) ("the Federal Court Act") and Order 20 rule 5 of the Federal Court Rules. The respondent abandoned the jurisdictional ground at the hearing of the motion.

Factual background 3 Most of this factual background is deposed to in the applicant's affidavit sworn 21 October 2010 in support of his substantive application but read in opposition to the respondent's motion. This affidavit, which runs to some 65 pages with a significant number of attachments, is discursive and is almost entirely irrelevant. It does betray, however, what is I believe a genuinely held catalogue of complaints, whether justified or not, against the National Australia Bank Limited (the Bank) and some of its employees and agents. 4 The applicant was formerly the sole director of Burymore Pty Ltd (Burymore), which was previously the owner of a property known as Hope Valley. The applicant was also involved with two other business entities, MGY Accounting Bunbury Pty Ltd ("MGY Accounting") and Jack Corporation Pty Ltd ("Jack Corporation"). The latter was the owner of two taverns. 5 The Bank provided three commercial mortgage overdraft facilities to Burymore totalling $650,000, and a fixed interest loan account in an amount of $535,000. These overdraft facilities and loan account provided to Burymore were secured by a registered mortgage debenture registered on 26 September 2000 (the Registered Mortgage Debenture), a mortgage over the Hope Valley property registered on 5 April 2001, and a guarantee and indemnity given by Burymore and the applicant in favour of the Bank with a basic liability of $1,135,000. 6 The applicant was also one of several persons who had, on 31 August 1999, given a guarantee and indemnity to the Bank with respect to the obligations of MGY Accounting, with a basic liability of $293,300. 7 By letter dated 15 March 2001, Mr Bob Jacobs, Principal Manager - Asset Structuring WA - of the Bank, advised the applicant that pursuant to clause 29.1 of the Registered Mortgage Debenture, Martin Jones of Ferrier Hodgson, Chartered Accountants, had been appointed as Investigative Accountant to examine the business affairs of Burymore. The applicant makes something of the fact that Mr Jacobs and Mr Jones were agents of the Bank. I will return to this later in these reasons. 8 In or about April 2001, the applicant agreed to put Jack Corporation into voluntary administration with Martin Jones as Administrator. 9 As at 2 December 2002, Burymore acknowledged that its indebtedness to the Bank was $1,567,885.97, that it had failed to pay that amount to the Bank, and that the Bank was entitled to exercise its rights under the Hope Valley property mortgage. 10 As at 2 December 2002, the applicant acknowledged that his liability to the Bank was $293,300 in respect of a guarantee given in relation to MGY Accounting, and was $1,135,000 in respect of the guarantee which he had given in relation to the debts of Burymore to the Bank. 11 During the period April 2001 to November 2002, the applicant was in dispute with the Bank in relation to various issues in relation to Burymore's debt to the Bank, Jack Corporation and MGY Accounting. In or about June 2001 the applicant relocated to Queensland. On 6 July 2001, Martin Jones was appointed as Joint and Several Liquidator of Jack Corporation. On 2 September 2002 the Deputy Sheriff wrote to the Bank advising that under the authority of writ of fieri facias 279/2002 Kris McGillivray, Brett McEvoy and Lester Weston v Burymore Pty Ltd, he was directed to sell the interest of Burymore in the Hope Valley property.

Deed of Settlement 12 By a Deed of Settlement dated 17 December 2002 entered into between the Bank, the applicant and Burymore, the applicant and Burymore released and discharged the Bank from any liability relating to any claim or allegation against the Bank arising from any matters which occurred before the execution of the Deed (including any claims connected in any way with Jack Corporation), and the Bank agreed that, notwithstanding the acknowledgments of indebtedness by Burymore and the applicant, the Bank's rights against them would be limited to the extent of the proceeds of sale of the Hope Valley property, and the Bank would provide the applicant with a settlement payment of $200,000. 13 According to the applicant, he negotiated the Deed of Settlement on his behalf and on behalf of Burymore. Mr Richard Lorraway, Head of Asset Structuring in Western Australia for the Bank, it seems, negotiated on the Bank's behalf. 14 According to the applicant, he did not know, before he executed the Deed of Settlement, that Mr Jacobs was actually employed by Ferrier Hodgson, a firm of chartered accountants and that Mr Jones, who had earlier been appointed by the Bank as Investigative Accountant to examine the business affairs of Burymore and who later became Administrator of Jack Corporation, was Mr Jacob's boss at that firm. Mr Jacobs was on secondment to the Bank at the relevant times. He says that if he had known these facts he would not have agreed to Mr Jones being appointed to either of those two positions in relation to Burymore and Jack Corporation respectively. It is to be remembered that there was no contractual or other relationship between the Bank and Jack Corporation.

Demands by liquidator of Jack Corporation 15 Mr Martin Jones was appointed liquidator of Jack Corporation and by letters dated 2 December 2002, in that capacity, he wrote to the applicant advising that he considered that there were strong grounds to show that the directors including the applicant had breached s 588G of the Corporations Act 2001 (Cth) in relation to Jack Corporation as Trustee for the Daniels Unit Trust formerly trading as "Liars Saloon", and as Trustee for the Coke Unit Trust formerly trading as "E Bar", and that he had quantified the claims against the applicant for insolvent trading in the sums of $136,061.87 and $389,522 respectively.

Applicant's previous Federal Court proceedings 16 On 10 November 2003 the applicant commenced proceedings in this Court against the Bank and Ferrier Hodgson alleging that both respondents had breached terms and conditions of the Deed of Settlement in that both had falsely accused the applicant in the letters dated 2 December 2002 to which I earlier referred. This proceeding was dismissed for reasons of lack of jurisdiction as disclosing no Federal matter: Spain v National Australia Bank [2004] FCA 87. Keifel J concluded that any claim in connection with the Deed of Settlement would appear to arise only under the general law, and that the "lack of explanation of the applicant's case against the respondents does not make it possible to see any connection between it and a federal statute": Spain v National Australia Bank at [14]. 17 After quoting this passage from her Honour's judgment, the applicant deposed in this proceeding that "[t]he federal statutes referred to were most likely the repealed sub-s 69C of the Banking Act, which provided the rules to establish the state of mind of a body corporate in relation to conduct of its directors, servants and agents". The applicant contends that under the repealed ss 69C(1) and (2) of that Act, the only fact he needed to establish to prove his claim was the relationship of agency and seconded employee between the Bank, Ferrier Hodgson, Mr Jacobs and Mr Jones, and by doing this it would have been impossible for Mr Jones to claim that he was acting in his own capacity. 18 The applicant in the present proceedings submits that, by reason of these letters of demand by the Liquidator of Jack Corporation, the Bank had breached the terms of the Deed of Settlement, and that he, the applicant, was therefore entitled to receive back the Hope Valley property. He alleged that Mr Lorraway, in the context of concluding the Deed of Settlement, had agreed that the Bank would ensure that he would never be contacted again and that this included contact by its former agents or servants. There is no responsive affidavit from the respondent. I will assume, for present purposes, that Mr Lorraway said this on behalf of the Bank. This gives rise to a number of observations. First, it was a statement made which reflects clause 2 of the Deed of Settlement by which the parties agree to resolve all matters between them. Second, it was not a statement made in relation to the affairs of Jack Corporation which was not a party to the Deed of Settlement nor a company with which the Bank had dealings. Third, even if the letters of demand constituted a breach of the Deed of Settlement, and in my opinion they did not, this does not give rise to a claim under s 69E of the Banking Act against the respondent. 19 The apparent relationship between the present case and the Banking Act, as appears from the applicant's affidavit at [1], is that the Bank is a body corporate under Div 1 s 9 of that Act and has authority to carry on a banking business in Australia. The basis for the claim against the respondent under the Banking Act is very difficult to understand. I have set out below the central submissions of the applicant so that, to the extent possible, they speak for themselves. 11. In 1999, Parliament changed the Banking Act by repealing civil sections that provided a defence against imprudent conduct in transactions between banker and customer. Thereby, in reality, repealing the civil statutes adversely affected or terminated a pre-existing right that an owner enjoyed in relation to his property, with the right being to gain justice by way of the Courts if the need should arise. For example; if say a person owned some particular property that was acquired by a bank through unethical means then it was possible to seek recompense by way of civil procedure in Court. This is not possible now. 12. However, the reason for my Application isn't in the fact Parliament dispensed with the civil provisions in the Banking Act rather, it is in the fact that despite being aware that imprudence has taken place, Government authorities won't investigate the bank under the replacement provisions, or prudential matters as per the Act. This means I have no choice, but to litigate against the Commonwealth under s 69E of the Act, because it is impossible to gain justice by other legislation.

Banking Act 1959 20 Section 69E of the Banking Act provides that: 69E Compensation for acquisition of property (1) If: (a) apart from this section, the operation of this Act would result in the acquisition of property from a person otherwise than on just terms; and (b) the acquisition would be invalid because of paragraph 51(xxxi) of the Constitution; the Commonwealth is liable to pay to the person compensation of a reasonable amount as agreed on between the Commonwealth and the person. If the Commonwealth and the person do not agree on the amount of the compensation, the person may institute proceedings in the Federal Court of Australia for the recovery from the Commonwealth of such reasonable amount of compensation as the Court determines. (2) Any damages or compensation recovered or other remedy given in a proceeding that is commenced otherwise than under this section is to be taken into account in assessing compensation payable in a proceeding that is commenced under this section and that arises out of the same event or transaction. (3) In this section: acquisition of property and just terms have the same respective meanings as in paragraph 51(xxxi) of the Constitution. 21 Subsections 69C(1) and (2) of the Banking Act were repealed by Item 74 of Schedule 2 of the Financial Sector Reform (Amendments and Transitional Provisions) Act (No 1) 1999 (Cth). The repeal of ss 69C(1) and (2) took effect on the date of assent to that Act, which was 17 June 1999. Prior to their repeal, ss 69C(1) and (2) provided that: 69C Conduct of directors, servants and agents (1) Where it is necessary to establish, for the purposes of this Act or the regulations, the state of mind of a body corporate in relation to particular conduct, it is sufficient to show: (a) that the conduct was engaged in by a director, servant or agent of the body corporate within the scope of his or her actual or apparent authority; and (b) that the director, servant or agent had the state of mind. (2) Any conduct engaged in on behalf of a body corporate by a director, servant or agent of the body corporate within the scope of his or her actual or apparent authority shall be deemed, for the purposes of this act and the regulations, to have been engaged in also by the body corporate unless the body corporate establishes that the body corporate took reasonable precautions and exercised due diligence to avoid the conduct.

Consideration 22 On the facts and circumstances set out above, there has not been any acquisition of the applicant's property by reason of the operation of the Banking Act. 23 Indeed, and fundamentally, the Hope Valley property was acquired by the Bank from Burymore and not from the applicant. For that reason alone he has no standing to bring such a claim even if it were otherwise maintainable which in my view, it is not. Burymore was de-registered on 26 June 2005. 24 Moreover, the Hope Valley property was acquired by the Bank pursuant to its rights as mortgagee from Burymore as mortgagor under the terms of the mortgage registered on 5 April 2001. The Bank's entitlement to exercise its rights under this mortgage was acknowledged both by the applicant and Burymore in cl 1.1 of the Deed of Settlement. The alleged breaches of the Deed of Settlement, as I earlier concluded, do not give rise to any claim under s 69E of the Banking Act. The applicant's real dispute, whatever the merits may be, is with the Bank. It is no concern of the respondent. 25 The repeal of ss 69C (1) and (2) of the Banking Act could not have caused any acquisition of the applicant's property resulting from the operation of that Act. The repeal of ss 69C (1) and (2) does not constitute "the operation of this Act" within the meaning of s 69E(1)(a) of that Act, and whatever the effect of that repeal, it could not, and did not, result in any acquisition of the applicant's property. 26 In my opinion, the application should be dismissed pursuant to s 31A(2) of the Federal Court Act as the applicant has no reasonable prospect of successfully prosecuting the proceeding. The applicant has not and cannot show any acquisition of his property by operation of the Banking Act. 27 It is unnecessary to consider the further ground that the proceeding and the claim for compensation against the Commonwealth is frivolous and vexatious and an abuse of the process of the Court, and for those reasons should also be dismissed pursuant to Order 20 rule 5 of the Federal Court Rules.

Conclusion 28 For these reasons, the application should be dismissed with costs. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour.

Corporations Act 2001(Cth)ss 69C, 69E, 588G

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